FACT SHEET

UNITED STATES DEPARTMENT OF AGRICULTURE

FARM SERVICE AGENCY

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November 2012

Loans for Socially Disadvantaged Farmers and Ranchers

Overview

The U.S. Department of 

Agriculture’s (USDA) Farm 

Service Agency (FSA) 

makes and guarantees 

loans to eligible socially 

disadvantaged farmers (SDA) 

to buy and operate familysize farms and ranches. Each 

fiscal year, the Agency targets 

a portion of its direct and 

guaranteed farm ownership 

(FO) and operating loan (OL) 

funds to SDA farmers. Nonreserved funds can also be 

used by SDA individuals.

An SDA farmer or rancher is a 

group whose members have 

been subject to racial, ethnic 

or gender prejudice because 

of their identity as members of 

a group without regard to their 

individual qualities. These 

groups consist of American 

Indians or Alaskan Natives, 

Asians, Blacks or AfricanAmericans, Native Hawaiians 

or other Pacific Islanders, 

Hispanics and women.

The agency:

■ Helps remove barriers 

that prevent full 

participation of SDA 

farmers in FSA’s farm 

loan programs;

■ Provides information 

and assistance to SDA 

farmers to help them 

develop sound farm 

management practices, 

analyze problems and 

plan the best use of 

available resources 

essential for success.

Types of Loans and Uses of 

Loan Funds

Direct farm ownership loans 

(FO) and farm operating 

loans (OL) are made by 

FSA to eligible farmers. 

Guaranteed FO and OL 

loans are made by lending 

institutions subject to federal 

or state supervision (banks, 

savings and loans, and units 

of the Farm Credit System) 

and guaranteed by FSA. 

Typically, FSA guarantees 90 

percent of any loss the lender 

might incur if the loan fails. 

FO funds may be used to 

purchase or enlarge a farm or 

ranch, purchase easements 

or rights of way needed in 

the farm’s operation, erect or 

improve buildings, implement 

soil and water conservation 

measures and pay closing 

costs. Guaranteed FO funds 

also may be used to refinance 

debt. 

OL funds may be used to 

purchase livestock, poultry, 

farm equipment, feed, seed, 

fuel, fertilizer, chemicals, 

insurance, and other 

operating expenses. The 

funds also may be used 

for training costs, closing 

costs and to reorganize and 

refinance debt.

Terms and Interest Rates

Repayment terms for direct 

OL depend on the collateral 

securing the loan and usually 

run from one to seven years. 

Repayment terms for direct 

FO vary but never exceed 40 

years. 

Interest rates for direct loans 

are set periodically according 

to the government’s cost of 

borrowing.

 

Guaranteed loan terms are 

set by the lender. Interest 

rates for guaranteed loans 

are established by the lender. 

Downpayment Program

FSA has a special loan 

program to assist socially 

disadvantaged and beginning 

farmers in purchasing a farm. 

Retiring farmers may use this 

program to transfer their land 

to future generations.

To qualify:

■ The applicant must make 

a cash down payment of 

at least 5 percent of the 

purchase price.

■ The maximum loan 

amount does not exceed 

45 percent of the least 

of (a) the purchase price 

of the farm or ranch 

to be acquired; (b) the 

appraised value of the 
FACT SHEET

Loans for Socially Disadvantaged Farmers and Ranchers November 2012

farm or ranch to be 

acquired or; (c) $500,000 

(Note: This results in a 

maximum loan amount of 

$225,000).

■ The term of the loan is 20 

years. The interest rate is 

4 percent below the direct 

FO rate, but not lower 

than 1.5 percent.

The remaining balance 

may be obtained from 

a commercial lender 

or private party. FSA 

can provide up to a 95 

percent guarantee if 

financing is obtained from 

a commercial lender. 

Participating lenders 

do not have to pay a 

guarantee fee.

■ Financing from 

participating lenders must 

have an amortization 

period of at least 30 

years and cannot have 

a balloon payment due 

within the first 20 years of 

the loan.

Land Contract (LC) 

Guarantees

These provide certain 

financial guarantees to the 

seller of a farm through a land 

contract sale to a beginning 

or socially disadvantaged 

farmer. The seller may 

request either of the following:

Prompt Payment Guarantee: 

A guarantee up to the amount 

of three amortized annual 

installments plus the cost of 

any related real estate taxes 

and insurance.

Standard Guarantee: A 

guarantee of 90 percent of the 

outstanding principal balance 

under the land contract.

The purchase price of the 

farm cannot exceed the 

lesser of (a) $500,000 or 

(b) the market value of the 

property. The buyer must 

provide a minimum down 

payment of five percent of the 

purchase price of the farm. 

The interest rate is fixed at a 

rate not to exceed the direct 

FO loan interest rate in effect 

at the time the guarantee is 

issued, plus three percentage 

points. The guarantee period 

is 10 years for either plan 

regardless of the term of the 

land contract. The contract 

payments must be amortized 

for a minimum of 20 years. 

Balloon payments are 

prohibited during the 10-year 

term of the guarantee.

Sale of Inventory Farmland

FSA advertises inventory 

property within 15 days of 

acquisition. Eligible SDA and 

beginning farmers are given 

first priority to purchase these 

properties at the appraised 

market value. If one or more 

eligible SDA or beginning 

farmer offers to purchase the 

same property in the first 135 

days, the buyer is chosen 

randomly.

Where to Apply

Applications for direct loan 

assistance may be submitted 

to the local FSA office serving 

the area where the operation 

is located. Local FSA offices 

are listed in the telephone 

directory under U.S. 

Government, Department of 

Agriculture or Farm Service 

Agency. For guaranteed 

loans, applicants must apply 

to a commercial lender who 

participates in the Guaranteed 

Loan Program. Contact the 

local FSA office for a list of 

participating lenders.

For more information

More information is available 

from local FSA offices or on 

the FSA website at www.fsa.

usda.gov.

The U.S. Department of Agriculture 

(USDA) prohibits discrimination in 

all its programs and activities on the 

basis of race, color, national origin, 

age, disability, and where applicable, 

sex, marital status, familial status, 

parental status, religion, sexual 

orientation, genetic information, 

political beliefs, reprisal, or because 

all or part of an individual’s income 

is derived from any public assistance 

program. (Not all prohibited bases 

apply to all programs.) Persons with 

disabilities who require alternative 

means for communication of program 

information (Braille, large print, 

audiotape, etc.) should contact 

USDA’s TARGET Center at (202) 

720-2600 (voice and TDD). To file a 

complaint of Discrimination, write 

to USDA, Director, Office of Civil 

Rights, 1400 Independence Avenue, 

SW., Washington, DC 20250-9410, or 

call (800) 795-3272 (voice) or (202) 

720-6382 (TDD). USDA is an equal 

opportunity provider and employer.

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